I’ve discussed the concept of volume quite a bit in the last few weeks in this space. I actually have something quite important to discuss in coming days, but for today, I want to focus on the continuing (largely fruitless) wait for volume to “come back.” In August, there was some attribution to summer slowness (although few people paid attention to the fact that total volume was down almost 40% in August 10 when compared to August 2009. I described this on August 23 (http://epiphanytrading.blogspot.com/2010_08_23_archive.html) and then again on September 7 (http://epiphanytrading.blogspot.com/2010_09_07_archive.html). Well, we’re winding up a fantastic month for the stock market- one in which the S&P 500 is poised to have its best September back since “The Wizard Of Oz” debuted in 1939 (a year by the way in which “Gone With The Wind,” “Goodbye, Mr. Chips,” “Mr. Smith Goes to Washington,” “Of Mice And Men,” and “Wuthering Heights” were all nominated for Best Picture…an incredible year for cinema). But back to the focus- despite the rabid strength of the market this month, September volume is also on pace to be about 35% lower than it was in September last year. So, what gives? Three things. First, there is just a palpable air of uncertainty with the whole stock market in general. In a bullish phase (such as September), people don’t want to be left out on the upside but are scared to jump in. In a bearish phase (such as August), people are holding on in thinking things are turning a bit but dropping bids ‘just in case.’ Second, the flash crash of May 6 is attributed to the lack of volume. I don’t place as much credence in that notion personally, but there is no doubt that a seemingly random 1,000 point Dow drop did cause a great deal of consternation for many investors and funds. The third reason was described in massive detail on August 5 (http://epiphanytrading.blogspot.com/2010_08_05_archive.html). I won’t repeat that whole day’s important content, but the gist of it was that the impact of high frequency trading on volume is enormous. There is price improvement overall many times, but less liquidity due to the computer-generated movements. So, as October looms, it is going to be a very telling month for volume. With the market at relatively lofty levels, it will be quite interesting to see if some of the volume comes back in garnering interest (right or wrong) at the higher levels for prices. Earnings season will commence next week with the major part of it occurring throughout the month. The mutual fund fiscal year ends on October 31. Finally, there are all sorts of calendar worries based on Octobers past. So, let’s hope for the best for some October volume as it will be the true indicator of total interest in the stock market.
Markets in Asia were generally higher after a positive economic report out of China with Tokyo up 0.4%. The gains were even stronger in Europe as London and Frankfurt both gained about 0.7%. Gold is higher once again by about ½%, oil by almost 1%, and the dollar and bonds are both weaker. Personal income came in better than expected this morning. In harking all the way back to yesterday’s post about Fed governors, the Fed’s Dudley noted that further Fed action to support the economy is “likely,” there could be medium and long-term treasuries bought, and unemployment remains too high while inflation remains too low. Futures are higher with the Chinese report outweighing everything. Look for a slower day than yesterday as the Northeast storm is going to keep some people home. The strength should hold although yesterday’s sell-off was a bit disconcerting. Focus in particular on relative weakness plays on the open, the earnings plays such as CAN, and big cap techs which should be moving all day.
Reiterating-
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
GYMB- putting itself up for sale
A.CN- decent earnings
RECN- decent earnings
CSIQ- closed near a high after an upgrade from Jeffries
EDMC- closed near a high among other education stocks on proposed legislative changes for the pay-for education industry
AMCN- closed near a high after renewing its concession rights contract with China Southern Airlines
CVD- closed near a high amid a 10-year R&D outsourcing deal with Sanofi
PAY- closed near a high
BORN- closed on a high
DEAR- closed near a high
LCRY- closed near a high after posting good earnings
COP, ALKS- featured on “Mad Money” last night
CCIH- dbeuting as IPO with 6.06 million shares at 13.90 above expected range of 10-12
Bad-The following stocks have bad news and/or a weak technical pattern
HPQ- named new CEO; market seems to have been disappointed in choice after-hours
TNK- share offering
DVOX- warned on earnings
WCRX- share offering
NFLX- major intra-day reversal in closing near a low
CTXS- closed near a low
ROVI- closed near a low
PPD- closed near a low
KEYN- debuting as IPO at 10 (9.1 million shares) at low end of 10-12 range.
Earnings:
None today
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
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